The Proposal would establish a prescriptive and costly regulatory framework for investment advisers to follow when outsourcing certain services or functions to third party service providers. Compliance with the Proposal would be especially costly for small investment advisers and their retail investor clients. The Proposal puts in place a problematic set of incentives that encourages advisers to insource activities even though it may be more efficient and provide investors more protection if the adviser outsourced the activity to subject matter experts. However, the Chamber notes that nowhere in the Proposal is there adequate discussion or any compelling evidence to show that investment advisers are currently failing in their obligation to oversee third parties. As the Proposal itself notes, proper oversight of outside service providers is already widely understood to be part of an investment adviser’s existing legal obligations.
The Chamber recommends that the SEC drop the Proposal in its entirety and instead re-focus its rulemaking agenda on efforts that would fulfill the SEC’s tripartite mission.